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Do Tax Havens Flourish?

In: Tax Policy and the Economy, Volume 19

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  • James R. Hines Jr.

Abstract

Tax haven countries offer foreign investors low tax rates and other tax features designed to attract investment and thereby stimulate economic activity. Major tax havens have less than one percent of the world's population (outside the United States), and 2.3 percent of world GDP, but host 5.7 percent of the foreign employment and 8.4 percent of foreign property, plant and equipment of American firms. Per capita real GDP in tax haven countries grew at an average annual rate of 3.3 percent between 1982 and 1999, which compares favorably to the world average of 1.4 percent. Tax haven governments appear to be adequately funded, with an average 25 percent ratio of government to GDP that exceeds the 20 percent ratio for the world as a whole, though the small populations and relative affluence of these countries would normally be associated with even larger governments. Whether the economic prosperity of tax haven countries comes at the expense of higher tax countries is unclear, though recent research suggests that tax haven activity stimulates investment in nearby high-tax countries.
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Suggested Citation

  • James R. Hines Jr., 2005. "Do Tax Havens Flourish?," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 65-100, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:0165
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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